These are changes that could impact cashflow.

The revisions to the SBA rules make it easier for borrowers to meet the 10% equity requirement for loans, allowing seller debt to count towards the full 10% equity injection.

Other changes include the acceptance of Home Equity Line of Credit (HELOC) or cash-out refinance of real property as equity, and the simplification of debt refinance.

And a newly implemented rule limits loan terms for partner buyouts to 10 years.

5:18 Use of HELOC and Cash-out Refinance for Equity
6:30 Clarification of SBA 7(a) vs. 504 Loans
17:40 SBA’s New 10-year Loan Term Limit
26:21 REITs Management Approval

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Essential strategies for development amidst financial uncertainties.

In this episode, Scott explores the intricacies of evaluating potential development sites for lender approval in today’s challenging economic landscape.

With interest rates on the rise and a potential recession looming, Scott discusses the strategic importance of seizing opportunities during economic downturns, where less competition can lead to greater profits.

He provides detailed insights on proper site selection, the critical role of feasibility studies, and shares lessons learned from past development challenges, urging investors to be proactive and well-prepared for when the market rebounds.

Listen For:
4:53 Evaluating Potential Development Sites
10:50 Overbuilding: A Developer’s Cautionary Tale
13:37 Navigating Financial Challenges and Recovery Options 

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Listen Notes
Episode Transcript

Announcer (00:07):

This is the Self-Storage Podcast where we share the knowledge and skills from the industry’s leading investors, developers, and operators to help you launch and grow your Self storage business. Your host, Scott Meyers, over the past 18 years has acquired, developed, converted and syndicated nearly 5 million square feet of Self storage nationwide with the help of his incredible team at, who has helped thousands of people achieve greatness in Self storage.

Scott Meyers (00:42):

Well, hello everyone, and welcome back to the Self-Storage Podcast. I’m your host at Scott Meyers, and today what we’re going to be talking about is evaluating potential development sites to get lender approval because we know it’s a little bit difficult these days with today’s higher interest rates and with lenders of being a little skittish when it comes to approving these sites that are well more speculative. And that’s what development is. It’s a little more speculative than looking at an existing facility that has a historical track record of performance that we can accurately or somewhat accurately predict where it’s going to go into the future. And so as we find ourselves heading into, well, not only has it been a difficult lending time, but we also, depending upon who you listen to, and there’s a couple of economists that I think we’ve mentioned in the past that I follow that seem to think that we are going to be heading into a time in which America will be in a recession and then we know what happens, then it gets even more difficult.


But we also know that this is the time when everybody is rushing out that we should be rushing in. And this is the time when there’s less competition and fewer people that are getting either into the self-storage business or the players that are already in that they’re not developing and doing what we should be doing, which is preparing for when the pendulum swings the opposite direction because this is where the money is made. The true wealth and the empires are created in self-storage is during the downtimes when we’re building in anticipation of a lower interest rate environment and a lower cap rate environment, which means we’ll be able to then take advantage of the economy coming out of a recession, people buying houses again, and people moving, which drives the performance of the self-storage industry. And then also the cap rates coming down with the interest rates, which means our valuations will be also driven up by the economy.


So when we’re in this part of the bell curve, if you will, in terms of the interest rate environment that we’re in and a recessionary environment, this is the time that you should be building. So may not be as popular of a topic right now because it is a little bit difficult, but if you lean in and you pay attention, those of you that still have a development event, which we do, we are extremely bullish on both a development and conversions right now. And we have a fund that we are filling up that is not only are we filling with dollars, meaning our investors, our equity partners are come alongside of us and we’re filling it up with, yeah, you guessed it, projects, conversion projects to go right along with that. And so I thought it would be timely that I shared with you as we look back, history is a great teacher and you learn a lot of lessons from the mistakes that we’ve made in the past, and we learn a lot of lessons from what the economy has given us in terms of the recessions.


I’ve been through two, if you count covid as one, we could call that three when really things halted and it stopped in our economy. And so I’ve been through the 99 2000 recession, I’ve been out through oh eight and oh nine and now most recently with Covid, we’re able to see these patterns that come about and history does repeat itself. I find myself looking back at some of the mistakes that my friendly competitors made at the time, and also some of the mistakes that I made along the time, and really just out of ignorance and not knowing what I should have been doing at the time and taking advantage of the opportunity most of the first go around while I didn’t have a whole lot of money in 90, 92,000 and missed out on the opportunity of rushing in and doing the business at that time.


And then in 2008 and 2009, I recognized the opportunity that I lost by not having grown a large investor database of folks to come alongside because cash is king, liquidity is king. If you had the ability to snatch up those properties that got wrapped up in foreclosures and bankruptcies to no fault of theirs, I could have snatched up a whole lot more. I could have picked up abandoned development projects, I could have picked up abandoned conversion projects and then rode’m to the finish line from all the heavy lifting that somebody else had done and just finished these things out. When other folks ran out of money and ran out of runway, we would’ve been sitting much prettier. So that’s what started us on our journey of digging in and recognizing that when this next recession comes, we will be prepared with a war chest of capital and private lenders and we will have the general contractors development team and management all on the back end ready to take advantage of the gifts that the market gives us during a recession and or a downturn.


So here we are. So I thought I would share with you the playbook of what it looks like to go out and evaluate these sites. Now we are seeing, now we have seen, and there will be more coming in Q3 and Q4, so pay attention folks, this is the time to lean in. We’re going to see a lot of these opportunities come about as we’ve seen this before. Again, this isn’t our first rodeo and all the signs are there. We’re seeing all the markers and we’re seeing the deals coming to us. So we have some of these troubled owners, operators, developers that have run out of cash, they run out of runway. In some cases they may have picked the wrong side of the wrong project, but most of the time it’s really just wrong timing and improper planning. There’s a whole lot of folks that came into this industry thinking it was easy and they had the wind in their back blowing up their sail and pushing them to profitability in the past 5, 6, 7 years when things are good.


But now interest rates are higher, cost of capital is higher, it’s taking longer to get things done, and it’s caught some folks off guard, at least those that were new to the industry and didn’t see it coming. Well, this is the time when we sat back because we knew what was coming and we would have an opportunity to now jump in at the right time to pick up these sites, to pick up these pieces of land, to pick up these development projects and carry ’em onto the finish line. So we’re going to talk about how you can do the exact same thing no matter what markets you’re in. There isn’t any self-storage oz, if you will, where the streets are paid with gold and everything is easy and everything is fast and the money is flowing. Now, you still have to dig, but the good news is there’s gold in them, Bower Hills if you’re willing to dig and do the things that we’re going to be talking about in this particular episode.


And so as we take a look at the landscape, I’m going to go back to, because I don’t have a recent either mistake or failure of my own that I can share with you to look at some of the lessons. But going back to 2008 and 2009, there was a project that really kind of fits what I want to talk about today in my outline here is of all, maybe not all the things to do wrong, but some folks that got into a self-storage development project and they really didn’t do their homework, they didn’t have the proper education, they didn’t have a plan, and they failed to bring along some partners or consultants or anybody to come alongside of ’em and look over their shoulder or walk next to ’em to point out some of the mistakes that they clearly could have avoided. And so to set the stage for this, this is a project that was just a couple of development, a new development that was going in just about three, maybe two miles north of my house in our subdivision on a fairly decently traveled road at the time.


And this is back in 2009, so let me back up. It was in 2009 because it was after the recession. And the folks that picked up this site, they were developers, but they were developers of custom homes. And we all know what happened to the housing market in 2008 when Lehman Brothers fell, so did the rest of the banks. And that lending dried up, especially for homes and custom homes. And we dropped off a cliff and immediately most of the home builders went out of business. They filed bankruptcy under the protection and the laws that we have here in the US to do so. And then they hit the reset button in 2010 or 11 and began building after the fact. Well, this home builder decided that custom home builder, he decided he wanted to keep his subs busy. He had heard somewhere that self-storage was an easy business and thought, well, how hard could this be?


I’ve heard somewhere that if you build that, they will come. And this is a growing area of the city, a very fast growing area of the city, very affluent. It ticks these boxes. And so we’re going to show the world and the self-storage community what a custom home builder can do when they put their craft in their hand to building a state-of-the-art self-storage facility that is better than anything that anybody has ever seen. And I’ll be in all of the magazine covers and everybody will see what the I and we have done. And so I’m embellishing a little bit obviously, but if you looked at the facility and you understood a little bit about what it takes to build a proper class, a facility, what is overbuilding? You would see that perhaps those words were truly stated. And so this developer decided to set about building a facility, bought a large track of land, it was six acres, and they set about to developing this facility.


And so in the town in which I live, we live in a very affluent part of the city and there are zoning guidelines and restrictions. And if you’re going to build an industrial type of a project, there’s very few, especially on this road. Well, when it comes to self-storage, the town of the city said, well, we don’t want to see them ugly doors because nothing spells self-storage more than the ugly doors. And what we push back on in the storage industry is that, well, nothing, you’re right, nothing says self-storage more than those doors. And we want them to be visible and to be seen for people as they drive by for top of mind and awareness. They said, well, we won’t allow you to do that. We could put a sign out front. But what they required this developer to do is to put some retail out front.


So a small retail strip center that was going to be the front border to this site, and then the rest of it had to be a wall, and they put up a split block wall all the way around it. And then, I don’t dunno whether the city designated this or not or whether the custom builder decided to, but bought very nice split block expensive colors and then in the middle put these decorative stones, which are made out of, I don’t know, gold or Italian marble or something that he had left over. I don’t know what it was, but it was beautiful. It was the most beautiful split block while I’ve ever seen in a self-storage facility in my entire life. It was fabulous, probably eight foot tall so that you could not see the doors to the self-storage facility. And then in the front, I think there were six to eight small little retail establishments, so it could have been like a nail shop, a barbershop, a small little office of any store, maybe a copy and print center or something along those lines in the front.


So built this site out and then proceeded to build out all single story because they didn’t allow for multi-story. So proceeded to build out this entire facility and some boat RV parking in the back, put in a hundred and some thousand square feet of self-storage all at the same time. Now, for those of you in the business system, there are many, many things that we love about the business, and one of ’em is on the development end is its scalability, which means that you can build 25,000 square foot and then you wait until that lease is up and you don’t have to take on that loan. You don’t have to take on the loan risk, the development risk, the lease up risk of a hundred thousand all at the beginning because if you build it all out and you pay for it all or borrow the money from the bank, then you have to pay it all back.


And well, it takes a while to fill a hundred thousand square feet up. It’ll take you two and a half years, three and a half years in order to do so. In the meantime, you’re paying on all that. Well, if you have a smaller loan because you’ve only paid for or borrowed money for the perimeter fencing, the concrete pads of the gravel and 25,000 square foot of the building space, well, it’s much easier to be able to once the cashflow comes up to be able to cover that loan, and that’s shorter runway. And then when you get to the place where you’re stabilized 85, 90, 90 5%, then you come out, you have the contractors come out and you build the next 25,000 square foot. You do it in three phases, you do it in four phases, whatever that looks like. Well, instead, these folks decided to do all of it all at one time.


And so after this facility was built, it was beautiful split block inside as well. All steel roofs, no asphalt shingles, they spared no expense. The offices upfront were absolutely beautiful and it began to lease up. But in order to lease up a facility, you have to have movement, you have to have activity. And by the time they were done with this facility, banks still weren’t lending. The housing crisis was still in full swing. And we get the lion’s share of our door swings coming into our office and rentals from people that are moving. And if there’s no movement in the economy, if there’s no movement in the market from housing, we’re at a standstill, which is exactly where we are right now at the time of this podcast. Very high interest rates. This is a different reason as we head into this recession, but high interest rates right now, less movement in the market.


There’s also a shortage of houses as well and compounds that. And so for that reason, although we’re leasing up, it’s a much slower pace on our rental rate increases are much slower than what we would see in a booming environment like we had a couple years ago in a low interest rate environment when the economy is doing well. And so they built this monument to themselves and to what they could do to show the world. And then there it sat and I began to lease up a little bit here and there. Well, fast forward, so about a year to year and a half down the road, I get a call from my lender who had done the loan on this project, and he called me up and he said, Hey, I’m calling you as the vice president of the bank, but I’m calling you as an individual, Scott.


So here’s what we’ve got and we’ve got a situation. Are you familiar with X, Y, Z self-storage facility up the road from you? So of course I’m, I’m a steal storage junkie and I see all stealth storage facilities that go up in the market around me. Its a beautiful site. He goes, yeah, well, we did the loan on that and it’s not doing so well. And I said, oh, really? Tell me why. And he stated that, well, they build this big facility and we found it’s been leasing up very nicely, but they’re in about 50% occupancy right now and they can’t seem to get it above that and it’s been stuck there for a while and they’re unable to service the payments to us now. And so we were about to take it back into receivership, take over the property, and then either run it for a little while or dispo it, it’ll be set up for disposition to be able to sell it.


And before we go through all that and make it public, really good guy, we really don’t want to go through this process. So we’re wondering if we would be willing to do a short sale if you were interested in buying this property. I said, well, obviously that all depends upon the price and the numbers. I said, so share what you can with me. I’ll sign any nondisclosure and I’ll take a look at and review it. He said, all right, I’ll set it across. So signed the nondisclosure agreement and I got the basic numbers on it and I began to do my own feasibility study. And so for those of you that are unfamiliar with the process of a development, we do a feasibility study, which is basically a revers appraisal, which means that we have a consultant come in and survey the market, look at the competition, the amount of square footage that is in the market already, the rental rates, and then compare that against the population and population growth to determine are we in a place in which this market is oversupplied or undersupplied using numbers, industry averages as well as nationwide and then averages for the state and then the city.


And so anywhere between six and a half to eight and a half square foot per person, six and a half to eight and a half square feet of self-storage per person is widely considered equilibrium in our industry. And so if you’re sitting at 8%, or excuse me, eight square foot per person, well, it may be stabilized and there may be room for some competitors, but you may then find yourself in an oversupplied position if you drop another self-storage facility within a three mile radius of that. If you’re sitting at four and a half square feet per person, that means that there’s probably some room, especially when you look at rates, if people continue to raise rates because everybody’s full, because it is undersupplied a good market to come into. As we looked at the market, I was a little surprised without looking at the numbers.


We obviously back then we had about four years of storage under our belt and I recognized that, wow, that’s a big facility without much going on. We were in the path of progress and our neighborhood was a brand new custom neighborhood and it was still considered out there a little ways. And so I thought, boy, that’s a large self-storage facility and there’s nothing else around. There weren’t any other self-storage facilities around except for a couple of older mom and pop facilities that were class C facilities, which really weren’t frequented by the clientele in my neighborhood or anywhere else around the area at the time, but we still looked at this as a pretty large facility. And sure enough, then our research, we did our own, we dug in and took a look at the population, we looked at the square footage around it.


We did a three and a five mile radius sweep, and then we looked at the rental rates and sure enough, they were very low because they were just doing their best to try to entice people to come in. And so as we got done with my own due diligence, I said, actually in the middle of it, I asked my lender, I said, Hey, Brett, can you send me the documents, the development documents, the feasibility study that they received on it? I’d like to see some of the other drawings, some of the construction, just so I get an idea and if you could share with me what the construction cost was in comparison to the price that you’re looking on the loan. He says, well, let’s just say that selling at the price that we have it offered, we really wouldn’t be making much. They would just be saving themselves from having a bankruptcy on the record.


I said, okay, so sales price is construction cost, I get it. Or maybe some extra lease up. And then he said, there is no feasibility study on it. I said, there is none, and you made the loan. And he goes, I know. Don’t give me the lecture. Scott, we did get a feasibility study on this project. He was a very, very reputable builder. He had some folks that were helping him on the construction side to build it, and we had done enough loans with you and with other self-storage facility developers and owner operators that we felt comfortable with. The project is said, okay, well I’ll share it with you then. My initial findings of our own internal feasibility study is that at 50% this facility is stabilized right now, there aren’t enough rip tops. There aren’t enough individuals in the market right now that will get this thing above what I would guess to be 60%.


I see lots of mistakes and holes that they’re making in their marketing and on their website, I even secret shopped them. And they’re making more than a handful of errors that are costing them lost rentals. And they still, even at the occupancy that they’re at right now, the rental rates are nowhere near where they still should be in comparison because the next closest competitors of a type property, the rent is still 30 to 40% higher. So there’s some upside on that end, but still not enough to be able to cover this cost. And so I don’t, you need to let me know what the price is on this project. It have to be considerably less than construction cost to even make it work now for the next buyer out because it ain’t me unless it’s less than that. In order for this to work or you’re going to have to just hold onto it, either well keep the buyer in or my advice to you is to take it on your own, put it into receivership, hire a management company and get it managed properly and then you sell it on your own.


He says, well, we don’t do that. Banks aren’t on the business of owning. I said, I know you get it, but you came to me and asked, so that’s where I sit. And so ultimately he swallowed hearted and said thanks. He said, that’s confirms what we already knew. He said, do you mind if I reach out to you in the future with any question? I said, sure. I said, here’s a strike price on it. Here’s what it’s worth today that would support the load. And he says, I know we’ve already done the rippers math on it. We can’t take that amount. I said, fair enough. So as we talk about site selection, there’s many, many lessons to be learned, and we’ll get to the end of the story a little bit here, but it goes back to the old adage, there are three important things that you need to note when developing any type of real estate or buying any type of real estate.


And we already know it without saying it, but I’ll just say for those that aren’t following along, location, location, location, great location at this site, five years in the future, or had there never been a recession and the developments had all stopped, that had halted during the recession, had come in, had all those, and by the way, they’ve all filled in now to give you a glimpse into the future, it’s filled up and it’s changed hands a couple of times and it’s doing very well. But the timing was wrong on this. It is location, location, location, but that location and building out that much just wasn’t right at that time. And it’s okay. Let me also point back to the mistakes that we’re putting out in this project and others that I’ve learned along the way, and I’ll weave those in. The lessons that we learn are the ones that stick with us and they service well as long as we learn from them and never make them again.


But I’ll say the biggest mistake that this developer made, and I’ve seen so many people make as they get into this industry, is the mindset industry that of this industry and that it is a simple predictable business model. It’s a set it forget it business that it’ll do well. You build that naval com and it’ll do well in spite of who you are and how you manage it just because people need space and it’s just a business that runs on its own. And that couldn’t be further from the truth. If that were the case, it wouldn’t be a business, it’d be a hobby. And if nothing happens, if you don’t pick it up and manage it and spend time with it, then it’s just a hobby. It’s not a business because a business will fail if you don’t walk the four corners of your business once you get into it.


And if you don’t do the proper due diligence. And that includes feasibility studies on a development project before you get into it. And so market studies are critical. You need to understand the market, the competition. You need to understand supply indexes and get a feasibility study done by a consultant who’s going to give you that data that you have not only for yourself before you move forward on a project, but then to take to a lender and to take to your private equity partners that you’re going to be raising capital from so that they can see that a third party person, a third party company that has no dog in the hunt, no skin in the game has given a stamp of approval for this project. And if you don’t get a stamp of approval and if they say no, then you need to second guess your expertise and your prowess in making something work.


When the experts say that it doesn’t. And in this case, we clearly see that the bravado of this self-storage and developer, this custom home builder got in the way of his logic and the reasoning behind why he shouldn’t have done this project, or at least at this time or at least should have phased it in. But more importantly, the lesson here folks, is have somebody come alongside of you that understands the business, that knows the business, that can point out the blind spots or look around them and shine the light in some dark corners that maybe you’re unaware of. If this is your first rodeo, let’s look at considerations for the site itself. If you found a piece of dirt, if you own a piece of dirt like this gentleman did, going to build some custom homes on it and then decided to change tunes, well, that doesn’t mean that a custom home subdivision or a single family housing subdivision of any sort makes a good self-storage development because what if there’s already a self-storage development across the street that had already been built or planned to be built and is now going in because they had already done a feasibility study, they recognize this, and now you’re coming along and adding another one?


Well, you’re going to oversupply the market. That doesn’t really make any sense. And so that’s why market studies are critical. And then to dig into the zoning and then the planning and determine. So then when you’re looking at a piece of dirt or if you inherit a piece of dirt, you need to understand what zoning is already in place. Is it already zoned for storage? Do you have to get a variance permitted use? What’s it going to take to get there? And then visit the zoning board to find out if this is something that they are open and amenable to doing. There are many zoning boards and many municipalities that aren’t friendly to self-storage. They just don’t want them ugly sheds in their community. They don’t want on this site. They want multifamily and they want custom homes. And so you need to understand what’s in place.


Can you build self-storage there, and what is the percentage chance that you’re going to be able to get a variance or permitted use if you buy this piece of dirt? And quite honestly, I wouldn’t buy anything until you get that or have the seller get that, get permits in place to build before you have the ability to then buy it. So then let’s just say that you’ve found a site or you’ve inherited a site, you already own a site. Well, is it big enough to build the size of facility that you want? You got to an acre and a half. Well, can you build really the size of facility that you want and will it support with only an acre and a half, a hundred, 120 units be able to support having a full-time or a part-time manager there? Or is it so small that you’re going to have to step in and manage it or find somebody to be able to manage it?


Is there room for expansion? Can you really maximize this plot or would it be better off to just sell it to somebody else and find a better site down the road? And then ultimately when you get a feasibility study done, they’re going to reach out and talk to some contractors and get some averages in terms of a cost of development so that you can begin to then build the financial model because that determines truly whether this is a feasible site or not. Do the numbers work, do the economics work. Here’s the site. Here’s how many square footage I can put on this. Here’s what it’s going to cost to build a site that size. Here’s the amount of money it’s going to take then to make those payments on it until the time when it breaks even, which is going to be one and a half, two and a half, three and a half years down the road to begin to support those payments.


And then at the end of the day, the market rents that are in place right now, will the market rents when I begin to fill it up along the way, be able to support the construction costs and the lease up costs, the holding costs along the way, and then make it profits overall. So all this needs to be done in a modeled out and considered before moving forward on a site. Or you may find yourself in a position in which you become the don’t wanter and now you’re selling it before the whole thing comes to fruition. Now, in an ideal world, we want what’s considered in terms of a feasibility study and the consultants speak and talk is an a plus site and an a plus market, and that’s not always the case. Sometimes the strength of the site can overcome the weakness of a market, and sometimes the strength of the market can overcome the weakness of a site.


Well, what does that mean? What does that look like? Self-storage is a retail business and people want to be close to home, which means that when somebody has a need for storage, they’re going to pull out their phone. They may be looking on an iPad or on their laptop depending on where they are, and they’re going to look for self-storage near me, right? That’s the typical search. And so they’re going to look for a site, a website that shows a picture of the facility and what they are looking for when they click on that is a nice, clean, welded, safe, secure site. It’s close to home, it’s on a busy road. It’s in the path of travel, whether it’s to the grocery store, school work or whatever. That’s what they’re going to click on first, and then they’re going to see the dots of sorts facilities around ’em.


But oh, wow, look at all these are located within three miles of the house. So I’m going to click on a few of these. And at the end of the day, folks, it is a commodity. So they’re not looking for school systems, they’re not looking for neighborhoods. They don’t need to be away from train tracks and quiet. They’re just putting their stuff there. And so recognize that it needs to be convenient if they’re going to the dry cleaners or a barber, it’s a place in a grocery store. These are all retail establishments that people frequent because it’s close to their home, and that’s the way you need to treat this as well. So where are these facilities? Potential customers choose a site typically because they saw it, which means that yes, we still do like to have our sites that are visible. They’re on a fairly busy road with a high traffic out, which means that when it comes time for them to find a site, when they have a need for storage, and then they click on that site, they recognize, oh, I know where that site is.


I passed it several times, but I didn’t need storage, so I didn’t pay attention to it, but I recognize it because I passed it 750 times in the past four years that I’ve lived in this location. And so for that reason, we do want it. Now, don’t get hung up on that, however, because in recent years, what we’re seeing is that more importantly, when people do go to the fellow or electronically, they’re going online to find a site. They just want something that’s close to them. So even if it is off the beaten path, meaning it’s in an industrial park or on a secondary road, as long as it’s close to them, they’ll go to it. It doesn’t have to be on a busy road, and it doesn’t have to mean that it has to be visible for them to remember it. And so we do consider the traffic count, and over the years, the number that has been widely accepted is 10,000 plus cars per day.


Well, we’ve continued to lower that and ratchet that back, and quite honestly, I’ve never adhered to that. We have many successful sites that are wildly successful, that are half that they’re 5,000 cars per day, they’re less than that even, and they’ve done very well. And I think what we’ve seen is that people will find you online and that they don’t necessarily have to drive by or be aware. However it is important. And that being said, accessibility is also key as well, or what we call ingress egress, which means that it can’t be tucked way back in an industrial park that is way off the beaten path, and you have to make seven right-hand turns to get to the facility, and nobody would ever see it unless they had a drone or they would see it on your website. So it does have to be accessible.


Visibility is good for brand awareness. It does have to be seen from the road from a road instead of just tuck back in the middle of nowhere that I wouldn’t recommend and not only for the success of the facility, but also recognize that when it comes time for you to sell to exit, most savvy and sophisticated buyers of sell storage facilities aren’t going to want to buy yours. If it is hard to see and it’s tucked way back into an industrial park somewhere, then you want to look at where it is located in relation to competition and not exactly what you would or what everybody would expect. Sometimes it’s good to be closer to your competition, especially if it is a REIT and what you’re building or buying is say a class B facility or even a C that you’re taking to a B and a B that you’re taking to a b plus.


Well, if you’re never going to be a class A facility, you want to be right across the street right next door to one of the REITs that have a nice shiny gleaming class, a self-storage facility that looks fantastic because they’re going to drive the market to traffic in your market online. And also in terms of people driving by and when they’re comparing between the two, if you’re located in nearby yet you’re a class B plus facility and your rates are just below the A, well, guess what? You get the benefit of all that traffic and all the marketing dollars that the REITs, the big players in the industry have already spent bringing awareness to sell storage and bringing awareness to sell storage around them that are near you. So you just need to be found online. You need to do marketing and advertising. You need to have an ad spend online as well, but it’s good to be close to your competition.


Now if everybody’s clustered in one location, well then it gets a little bit difficult. And so if you see a big group of folks that are already here on this side of town, but the path of growth is heading east more west or Self or north, then following the utility lines like houses and like apartments has always been a good strategy. Being in the path of progress and being out front is always a good thing because you get prime location, you get to beat your competitors to the punch, and you typically pay a little less for the land if you’re on the outskirts and you’re in the path where the progress and the growth is already coming as well. And in terms of the neighborhood or surrounding you, when we’re talking about a three to a five mile trade area is typically what we’re looking at.


Are there new homes in the area? Are there new developments coming? Are there new apartments coming in? We certainly like apartments because they are heavy users of self storage because smaller spaces with less storage inside, and it’s cheaper to rent a storage unit than it is to rent a three bedroom to store your stuff in instead of a two. It’s cheaper to rent a storage unit than it is to build an addition to your garage and have a third car garage or a bump out on your basement, whatever that looks like, what is close by, what is coming and is there going to be built in a demand with the new apartments and houses that are coming online? Now, when you look at these feasibility studies that we just touched on a minute ago, they only rely on the existing demographics, not what might come.


And so that’s what we’re looking at when it comes time to develop a facility is not only what we get from the feasibility study from our consultants, but then we’re going to dig in a little bit further. We’re going to go to the zoning office and we’re going to find out what apartments are zoned and where are they going in and where are the new developments, the housing developments, how many rooftops, how many units? And if we can see that all around us that there is path, that there are customers that are coming into this market that is going to heavily weigh into our decision. Now, do we bank on that a hundred percent? Well, we know what can happen as we just touched on, if we head into a recession, if the lenders all of a sudden put their pencils down and they stop lending and there’s no activity, well, we could be stuck.


So phasing these in is very important as we just discussed, but I’m talking to the zoning board and then keeping an eye on the horizon in terms of what’s happening in the economy so that you don’t get stuck literally like musical chairs without a seat if you build all of this and there are no customers that are coming. Also, how long does it take for these subdivisions to come in? If there’s a 1000 house subdivision that is coming in, how long does it take to build that out? Are they custom homes? Is it going to take longer? What is the speed at which they built these out before? Or is it a production builder that is going to build a whole bunch of duplexes and town homes and they’re going to throw ’em up on very, very quickly? What does that look like as well?


And having the timing and understanding when they’re supposed to break ground is also very important. And then what percentage of households rent storage space? Well, we’ve got some national averages, but it’s going to depend upon what they’re building in that area. And it depends on the area that you’re in. Florida does not have basements, so there’s a higher demand for storage. We look at a three mile trade area where 10 to 12 square foot per capita per person or per household sometimes is equilibrium and there’s still demand and people are raising rates. Whereas in the Midwest, maybe in the secondary areas, secondary ring of the metropolitan statistical areas, bigger subdivisions, bigger houses with business and bigger garages and land, and they’re allowed to have storage barns and sheds out back, they may not have as a high a demand. And so that six and a half to seven and a half square foot per person may be just about right, but what does that look like?


Then once we find it ticks all the boxes in terms of the market and the demographics, nothing happens unless we get approval from zoning. And again, many municipalities look at storage different ways. Some of them include self-storage as part of their master plan, and they recognize the need that it fulfills and they don’t want people’s junk or stuff stored outside if it doesn’t fit into the garage or in their basement or on the patios of these apartments or hanging over the railing or just wherever. They understand that if there’s a lack of storage in a community, then you’re going to see that stuff people stuff out everywhere. And so we are seeing many more municipalities doing what they should be doing forward thinking and putting these self-storage facilities in their master plan and carving out spaces with zone pieces of dirt that are 3, 4, 5 acres that are meant for self storage in strategic locations or bringing in some of the consultants to help with that.


We’ve all run into some others, and I literally, this is a statement that I received from one of the heads of the cities in which we were doing a conversion project where they said, people just need to throw their stuff away. If they’ve got that much stuff that they can’t store it in their house, they need to throw it away, or they need to go store it in the county, they’re not going to store it in my city, my city. So there are some officials, city officials and zoning boards that treat their city as if it is their own personal monopoly board, and they get to move the pieces around at will and say yes and no because they feel as if they have a right to do. So. Those are the cities and the municipalities in which we know we’re going to have a tough road to hoe.


And if the zoning isn’t in place and they have the ability to halt it, then we’re not going to go in there. We’re not going to assume that we’re going to change their mind because of our business model and the way we’re going to run it and get permits, a permitted use when it already isn’t place or a variance if it isn’t in place. So you have to walk through the door and talk to the folks that have the power to grant you the zoning. There’s an art and a science to that, and there’s a whole list of preparations in order to make sure that you get to that place before you buy a piece of dirt or if you own it before you decide to move forward with a development piece or going down that path, or if you decide to find a higher and better use for that piece of ground.


But that we’re going to cover in detail because that deserves a podcast all its own for that lesson. And we will break that down into part two of how to find the Best at Development Site. One that is going to be approved by the lenders and perhaps your private equity partners. Because it is a good site, it is the right site, and it is a great location for your next development because again, folks, because now is the time when everybody is rushing out and pencils are down, and the storage industry on the development side is the time that you should be looking at sites. So with that, stay tuned and we’ll see you on episode two of How To Find The Perfect Site.

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Scott Meyers

Scott Meyers is one of the nation’s leading experts in the self-storage business. Scott has a passion to share his experience and wisdom to help others succeed. Since 1993, he has architected dozens of extremely successful real estate transactions. He has built several multi-million dollar businesses in real estate including; single-family flips, to multi-family projects, industrial buildings, commercial office buildings, cold-storage buildings, warehousing, parking lots, and his favorite – self-storage.